Datadog Downgraded by Jefferies on Valuation Concerns After 94% Rally

Jefferies downgraded shares of Datadog (DDOG) to Hold from a previous Buy rating on Tuesday, citing significant valuation concerns after the stock's powerful rally in the first half of the year. The firm noted that its fundamental view on the company as a category leader and AI beneficiary remains intact.

Valuation Stretched After Surge

In a note to investors, Jefferies analyst Brent Thill explained that the firm's positive thesis on Datadog has largely materialized, contributing to the stock's 94% year-to-date gain. This performance was driven by strong execution and a re-acceleration in growth from 25% in the first quarter of 2025 to 32% in the first quarter of 2026, according to the note.

The firm highlighted that Datadog now trades at a demanding valuation of approximately 18 times its enterprise value to calendar year 2027 revenue. This represents a significant premium over peers.

• The valuation is a 4-turn premium to competitor Snowflake (SNOW).
• Jefferies stated this level leaves "little cushion for any execution slippage."
• With the stock now well above its prior price target, the firm will "look to get constructive again at a better entry point."

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Broader Market Context

The downgrade was part of a broader Q2 preview from Jefferies, which observed that the market is shifting from "indiscriminate negative positioning toward a more fundamentals-&-estimates-driven setup." The firm's proprietary checks for the second quarter indicated strong cloud demand and continued capacity shortages.

While positive on the sector, Jefferies cautioned that investor expectations remain elevated and that valuations are "stretched" for some names. In the same report, the firm expressed a preference for Amazon (AMZN), Microsoft (MSFT), and Atlassian (TEAM) heading into earnings, while turning negative on Palantir (PLTR), citing "escalating comps and competition."